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Fraud*According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain*As defined in Wikipedia

Saturday, June 11, 2011

Yesterday, I was reading the July issue of Harper's Magazine and came across a delightful essay by Mark Kingwell called "The Language of Work." Kingwell teaches philosophy at the University of Toronto. Here's the paragraph that jumped out at me and made me think of Goldman Sachs:

Jargon, slogans, euphemisms, and terms of art are all weapons in the upgrade/downgrade tradition. We might class them together under the technical term bullshit, set out by philosopher Harry Frankfurt. The routine refusal to speak with regard to the truth is called bullshit because evasion of normativity--correctness being, after all, a standard external to one's personal desires--produces a kind of ordure, a dissemination of garbage, the scattering of shit. This is why, Frankfurt argues, bullshit is far more threatening, and politically evil, than lying. The bullshitter "does not reject the authority of truth, as the liar does, and oppose himself to it. He pays no attention to it at all. By virtue of this, bullshit is a greater enemy of the truth than lies are."

You see, that's it in a nutshell as ZeroHedge also presciently conveyed here.

So I believe I understand why Levin kept insisting to Goldman executives that they made "shitty" deals, using their own word, and repeating it over and over. However, when Levin insisted on saying that Goldman Sachs "misled" Congress and "misled" the inquiry, he himself became a user of bullshit words, probably for legal reasons.

But the biggest bullshitters of all are Blankfein, Viniar, Cohn and Broderick all of Goldman Sachs fame as shown below in Taibbi's response to Sorkin:

One more thing I wanted to point about about Andrew Ross Sorkin’s story defending Goldman Sachs and Lloyd Blankfein the other day, in which it was posited that Goldman did not, in fact, have a “Big Short” in 2007. Sorkin says that according to Goldman, the firm’s net short position that summer may have been as low as $5 billion, and not $16 billion as claimed, therefore Lloyd Blankfein was not lying when he told the Senate, “We did not have a massive short bet.”

Given that Sorkin was apparently given access to a large trove of documents allowing him to make the case that Goldman didn’t have that “Big Short” on, I thought it would be instructive for readers to see what kind of answers the Senate got when it asked Goldman executives the same questions about the size of the banks’ short bet. They gave Sorkin the whole store, but Levin’s committee basically got name, rank, serial number, and a big legalese "eat me."

See if you can notice some consistencies in the following statements.

The committee, for instance, asked David Viniar, the bank’s Chief Financial Officer, to explain what he meant in an email exchange between himself and bank president Gary Cohn in the summer of 2007, when Cohn told Viniar that the bank’s Structured Products Group (where most of the dicey deals covered in the Levin report were made) made $373 million, while the CDO-CLO desk lost $230 million and the residential credit desk lost $92 million.

“Tells you what might be happening to people who don’t have the big short,” Viniar replies.

Asked to explain what he meant by a “big short,” Viniar sends this in his written response to the Senate. The emphasis is mine.

Although I was aware that Goldman, Sachs & Co. ("Goldman Sachs") had obtained a significant short position in order to counterbalance its significant long mortgage related inventory positions, which reduced the Firm's overall exposure to the mortgage market, I was not personally involved in the transactions. I also have no memory of any particular transactions or the overall notional value of this position at any point in-time.

Then, when asked to tell the committee the five dates on which Goldman had its largest short positions between December 2006 and December 2007, Viniar answers:

I do not know the information requested in this Question. I would not, in the ordinary course of business, have requested aggregate net short data on a notional basis.

It is difficult to convey the full absurdity of Goldman’s Chief Financial Officer testifying that he was “not personally involved” in these short transactions, that he had “no memory of any particular transactions,” and moreover that he wouldn’t have requested net short data “in the ordinary course of business.”

The Levin report is literally crammed full of Viniar emails showing intimate involvement in the planning and execution of the mortgage shorts. In December of 2006, Viniar held a meeting in which he outlined a very specific strategy for reducing the bank’s mortgage exposure. Another Goldman exec came out of that Viniar meeting with a notes outlining a seven-step plan to get out from under mortgages, with entries like, “Reduce exposure, sell more ABX outright… Distribute as much as possible on bonds created from new loan securitizations and clean previous positions… sell some more residuals…”

When asked later if these notes fairly summarized Viniar’s points, Viniar in writing says, “Yes.”

But he wasn’t personally involved, according to him, and he doesn’t remember any of it. And, according to him, he wasn’t keeping track of net short data as part of the “ordinary course of business.”

But all it takes is one look at the emails and you see that probably isn’t true. On July 24, 2007, for instance, the mortgage desk posted a profit of $83 million for the day, when the firm’s net revenue overall was only $74 million. Just a few days before, president Cohn had told Blankfein, "There is a net short." Viniar on that day, in an email entitled, “Daily Estimate 07-24-07 – Net Revenues $74 M,” wrote to Blankfein, “Mergers, overnight asia and especially short mortgages [emphasis mine] saved the day.”

But Viniar wasn’t keeping track of this stuff on a daily basis, according to him.

Of course, Viniar wasn’t the only Goldman executive doing the “I don’t know nothin' about nothin'” routine. The bank’s Chief Risk Officer, Craig Broderick, also suddenly forgot a lot when the Senate sat him down. The committee had copies of a presentation Broderick made to Goldman’s tax department in October of 2007, which read like this:

So what happened to us…? Starting early in '07 our mortgage trading desk started putting on big short positions, mostly using the ABX Index, which is a family of indices designed to replicate cash bonds. And did so in enough quantity that we were net short, and made money (substantial $$ in the 3rd quarter) as the subprime market weakened. (This remains our position today.)

If Broderick’s narrative sounds familiar, that’s because it’s basically exactly how the Levin report summed up the bank’s activities from that year. Hell, if I had written this same passage – “Goldman put on big shorts and made money (big $$!)” – I would have been slammed for oversimplifying a narrative too complex for ordinary mortals to understand. But it seems one can summarize this material succinctly, if one is so motivated. Anyway, when asked about this document by the Levin investigators, here’s what Broderick said:

I was aware that the Goldman, Sachs & Co. ("Goldman Sachs") had acquired a substantial short position in order to counter balance its long mortgage-related inventory positions and reduce its overall exposure to the mortgage market. I was not personally involved in the transactions through which that short position was acquired or covered, and have no recollection of any specific transactions or the overall notional value of this position at any time during this period…

Sound familiar? It’s a wonder that Goldman could have functioned at all, given that, apparently, neither its Chief Financial Officer nor its Chief Risk Officer knew anything about the firm’s business transactions.

Even funnier, though, was Broderick’s explanation of his “net short” comment:

My statement in the presentation that we were net short was based largely on hindsight given the fact that the firm had earned modest profits during a period of time during which the mortgage market declined.

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The Necessity of Resisting Financial Tyranny (June 11, 2011)

It's time we defended liberty and democracy against financial tyranny: take your money out of Wall Street and the "too big to fail" banks, and stop funding their fraud, churn and subversion of democracy.

June 14th is a national day of resistance against economic tyranny. We all need to do our part. The good folks at AmpedStatus.org have hosted this site: Acts of Resistance: What Are You Going To Do On June 14th to Rebel Against Economic Tyranny? Demonstrations and public actions are being planned in a number of cities.

If you cannot attend the public events, then consider taking direct action against Wall Street and the "too big to fail" banks. Direct action boils down to this simple act: remove your money from their grasp. Your money fuels their exploitation, their fraud, their skimming, their lobbying and thus their sabotage of democracy. If we all take our money out of their grasp, then they will shrink or expire.

No, the real reason Warren has become a piñata is that, as a Harvard law professor, she dreamed up the idea of a federal agency that could help prevent consumers of financial products — like, oh, predatory subprime mortgages — from being taken advantage of. Then she lobbied to turn it into reality, as part of the Dodd-Frank reform law. And now, working for the administration, she is busy setting up the Consumer Financial Protection Bureau, which will “go live” in less than six weeks.

You would think that Republicans would like this sort of thing. Instead, they portray Warren as a polarizing ideologue bent on creating an agency that, as Mitch McConnell, the Senate minority leader, put it recently, “could be a serious threat to our financial system.” How, precisely, an agency that tries to keep financial consumers from being gouged threatens the system is something no one ever explains. (Unless, of course, gouging consumers is central to bank profitability. Hmmm...)

"If I read those tables correctly, that means US banks have sold some $120 billion of credit default swaps to European banks. Let’s think about that for a minute.

When, not if, Greece defaults, US banks are going to have to dip into capital to pay those commitments. Capital that should be available for loans to businesses but will have to be paid to European banks instead. Will it be a 100% Greek default, or only 50%? If it is a default, do you have to pay all or just the defaulted portion, and when?

Why, oh why, are banks putting American taxpayers at risk, as these too-big-to-fail banks certainly are? And make no mistake, if several major banks were to collapse, our government would need to step in. The largest banks are too big for the FDIC to handle. Now, shareholders would be wiped out this time and bond holders would face haircuts. No question. But why are investment banks allowed to mix the risk with their commercial banks?"

"If I read those tables correctly, that means US banks have sold some $120 billion of credit default swaps to European banks. Let’s think about that for a minute.

When, not if, Greece defaults, US banks are going to have to dip into capital to pay those commitments. Capital that should be available for loans to businesses but will have to be paid to European banks instead. Will it be a 100% Greek default, or only 50%? If it is a default, do you have to pay all or just the defaulted portion, and when?

Why, oh why, are banks putting American taxpayers at risk, as these too-big-to-fail banks certainly are? And make no mistake, if several major banks were to collapse, our government would need to step in. The largest banks are too big for the FDIC to handle. Now, shareholders would be wiped out this time and bond holders would face haircuts. No question. But why are investment banks allowed to mix the risk with their commercial banks?"

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